We propose a series of interrelated studies of medical service utilization and costs and the associations between psychotherapy and medical care utilization by analyzing the large data resource represented by the Blue Cross/Blue Shield FEP health insurance claims files. From 1974 through 1978 almost 8 million federal employees and family members, retires and survivors of federal employees were covered by this fee-for-service plan. Outpatient mental health health benefits were offered on much the same basis as outpatient medical care, and over 220,000 persons used some form of mental health care. The database thus permits large scale and finely detailed studies of the effects of mental health treatment on medical care utilization of persons with various somatic diseases, demographic characteristics (particularly aging) and medical histories. We will conduct 1) a series of "quasi experiments" to determine the conditions (demographic, particularly age and sex, and history of medical treatment) under which the cost-offset effect can be expected, and to eliminate alternative explanations for the findings; 2) a series of descriptive studies to characterize the MHT using and non-using persons in the database; 3) comparative studies of the cost-offset effect in the FEP and in published studies, and 4) studies of both of the predictability of use of MHT and the predictability of the cost-offset effect of different kinds and amounts of MHT users. We have developed techniques to deal with the major methodological problems that impede generalization from retrospective studies of the impact of psychotherapy on medical utilization. This program of studies could provide information needed to develop policies for the rational inclusion of psychotherapy and other mental health services in health insurance plans.